Historically low interest rates and lackluster loan demand have squeezed net interest margins at community banks, leaving little opportunity for earnings growth at a time when banks are expected, and will soon be required, to have increasing amounts of capital. The Federal Reserve's inevitable policy change to allow a rise in interest rates only aggravates this problematic situation. However, community banks have access to interest rate derivatives designed to mitigate or hedge interest rate risk while creating an additional source of fee income.

For more information regarding these interest rate derivatives, including structure and regulatory requirements, download the bulletin below.